International rating agency Fitch Ratings has affirmed the long-term foreign and local currency ratings of 'B-' (B minus) for the Municipality of Metropolitan Istanbul (IMM). The long-term outlook is negative, reflecting that of the sovereign rating.
Istanbul has shown some resilience to the economic downturn and the administration has managed not only to report satisfactory budgetary performance but also to repay debt. The municipality's importance to the local economy cannot be underestimated, as it accounts for close to 20 percent of Gross Domestic Product (GDP) and some 40 percent of total tax collection and higher than national average GDP per capita.
However, Fitch also notes that Istanbul's credit profile is directly affected by central government policies and actions and the city is highly vulnerable to negative changes in the distribution percentage of national tax sharing taxes, which account for the bulk of its revenues.
Reductions in 2002 and 2003 in the share that Istanbul takes from these taxes have had a detrimental impact on revenues for the administration and taxes declined by 25 percent in 2002, in real terms due to both the reduction of share and the country's current economic climate.
The ratings take into account the city's important role as Turkey's business, financial, and cultural capital; its attraction results in its facing a strong migratory inflow. Istanbul now contains 15 percent of the republic's population and, at more than 9.9 million, its population is 2.5-times larger than that of the capital, Ankara, the nation's second largest city. Between 1990 and 2000. Istanbul's population grew by 40 percent, faster than any other city in Turkey.
In spite of the unfavorable changes in the tax sharing and the national economic recession, the administration has been able to post budgetary surpluses before debt financing for several years. It has compensated for tax decline by cutting back in discretionary expenditure, particularly in capital investment that accounts for close to 58 percent of the budget, in real terms.
Nevertheless, capital expenditure cannot be curtailed indefinitely as the population growth is placing more pressure on the city to modernize and expand its transport network. This is essential for Istanbul’s future well-being and economic development.
Istanbul has a variety of municipal enterprises providing essential services to local residents, including gas utility (IGDAS), the sea bus ferry service company (IDO) and the metro system (ULASIM). These companies are indebted and in the past some of the obligations of the municipal companies were assumed by the State treasury and subsequently reverted to IMM.
Since all of IMM's and municipal companies' debt is denominated in foreign currency, and their revenues are in the domestic currency, there is a significant currency mismatch. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
